Advisers have called on the Financial Conduct Authority to crack down on claims management companies after it takes over regulation of the industry.
Ian Osang, partner at Essex-based Ingard, and Alan Lakey, adviser for Hertfordshire-based Highclere Financial Solutions, called on the City watchdog to "clamp down" on claims management companies (CMCs) as soon as the window of redress for payment protection insurance (PPI) has closed.
Mr Osang commented: "The FCA has announced an end date to PPI claims, so all of these companies will need new victims to go after.
"Unless the FCA clamps down as soon as they take over regulation of the industry, we will be facing the same false claims on investment and pension advice as banks have on PPI."
The FCA has confirmed said the final deadline for making a new PPI complaint will be August 2019, a deadline which has caused one CMC - We Fight Any Claim - to state it will take the regulator to court.
But Mr Osang said: "I can’t think of anything which demonstrates the decline in moral standards in society more than an industry which is primarily built on fraud, and where the authorities have turned a blind eye to this fraud."
Mr Lakey said: "FCA told me it is minded to grandfather all CMCs across. I questioned why it would do this, given that a high percentage are fraudsters, when the FCA refused such a process for advisers pre-RDR.
"I also find it strange that firms of solicitors that specialise in claims management will continue to be regulated by the law society."
Mr Lakey said he "wholeheartedly agreed" with Mr Osang that CMCs have enjoyed light touch regulation from the MoJ and have their hands slapped when proof of fraud is provided.
"These firms are a plague that must be contained. The FCA should assess each one of them before allowing them to be regulated. I would imagine any worthwhile audit would remove 75 per cent of them at a stroke", he stated.
According to a spokesman from the FCA, the issue is not something on which the regulator can comment ahead of any consultation it will do on bringing CMCs into its regulatory regime.
To date, PPI misselling redress has far outstripped the redress for the review into pension misselling in the 1990s.
Latest figures from the FCA show a total of £213.1m was paid in December 2016 to customers who complained about the way they were sold PPI. This takes the amount paid since January 2011 to £26.2bn: the largest amount of redress for any one misselling review in the UK.
A report from the National Audit Office in 2016 revealed the vast majority of PPI complaints - and any financial services complaints - to the Financial Services Ombudsman now come through CMCs, not from consumers or their advisers (see Figure 1).